27.3 De Minimis Benefits and the Fringe Benefits Tax

De Minimis Benefits and the Fringe Benefits Tax

Employee benefits are either tax-exempt de minimis benefits, part of the PHP 90,000 exempt ceiling for 13th month pay and other benefits, taxable compensation for rank-and-file employees, or subject to the fringe benefits tax for managerial and supervisory employees. This section covers the de minimis ceilings as raised by RR No. 29-2025 and the fringe benefits tax under Section 33.

---

1. De Minimis Benefits: Thresholds and Tax Integration

De minimis benefits are facilities or privileges of relatively small value furnished by an employer to employees as a means of promoting health, goodwill, contentment, or efficiency. Under Revenue Regulations No. 2-98, as amended most recently by RR No. 29-2025, de minimis benefits within their specific statutory ceilings are completely exempt from income tax, withholding tax, and fringe benefits tax.

Ceilings for De Minimis Benefits (RR No. 29-2025, effective January 6, 2026)

RR No. 29-2025 raised most de minimis ceilings that had applied since RR No. 11-2018:

Crucial Integration Rule: De Minimis and the PHP 90,000 Cap

1. If a benefit qualifies as de minimis and stays within its specific statutory threshold, it is wholly exempt and does not reduce the PHP 90,000 13th month pay ceiling.
2. If a de minimis benefit exceeds its statutory threshold, only the excess amount is transferred and added to the employee's "13th Month Pay and Other Benefits".
3. If the combined sum of the 13th month pay, other benefits, and the excess de minimis benefits is PHP 90,000 or less, the entire amount remains tax-exempt.
4. If the combined sum exceeds PHP 90,000, only the excess above PHP 90,000 is treated as taxable compensation income subject to regular graduated tax rates.
5. Note: Monetized sick leave credits paid to private employees do not qualify as de minimis; they are treated directly as "other benefits" subject to the PHP 90,000 threshold.

---

2. Fringe Benefits Tax (FBT) under Section 33

The Fringe Benefits Tax (FBT) is a final withholding tax imposed upon the grossed-up monetary value of fringe benefits furnished, granted, or paid by an employer to managerial and supervisory employees.

Rank-and-File vs. Managerial / Supervisory Employees

• Rank-and-File Employees: Fringe benefits granted to rank-and-file employees are not subject to FBT. Instead, non-exempt benefits form part of their gross compensation income subject to regular graduated income tax rates under Section 24(A).
• Managerial and Supervisory Employees: Fringe benefits granted to managerial and supervisory personnel are subject to the 35% final Fringe Benefits Tax under Section 33.

                               Employee Fringe Benefit Classification
                                                 │
         ┌───────────────────────────────────────┴───────────────────────────────────────┐
         ▼                                                                               ▼
  Rank-and-File Employee                                                  Managerial / Supervisory Employee
• NOT subject to FBT                                                    • SUBJECT to 35% Final FBT
• If exempt under de minimis or PHP 90K: EXEMPT                         • Paid by the employer
• If non-exempt: Taxable compensation income                            • Based on Grossed-Up Monetary Value (GUMV)
• Withheld via regular payroll graduated tax                            • Withheld and remitted quarterly (BIR Form 1603Q)

Computational Mechanics: GUMV and FBT Rate

Under the TRAIN Law (effective January 1, 2018), the FBT rate is 35% for citizens, resident aliens, and non-resident aliens engaged in trade or business (NRA-ETB). For non-resident aliens not engaged in trade or business (NRA-NETB), the FBT rate is 25%.

$\text{Grossed-Up Monetary Value (GUMV)} = \frac{\text{Monetary Value of Fringe Benefit}}{65\%} = \frac{\text{Monetary Value}}{1 - 0.35}$

$\text{Fringe Benefits Tax Due} = \text{GUMV} \times 35\%$

$\text{Total Employer Expense Deduction} = \text{Monetary Value} + \text{FBT Due} = \text{GUMV}$

Valuation Rules for Specific Fringe Benefits

1. Housing Privileges:
   • Employer leases residential property for employee: $\text{Monetary Value} = 50\% \times \text{Rental Paid}$.
   • Employer owns residential property and provides it for employee's use: $\text{Monetary Value} = 50\% \times (5\% \times \text{FMV or Zonal Value, whichever is higher})$.
   • Employer purchases property and transfers ownership to employee: $\text{Monetary Value} = 100\% \times \text{Acquisition Cost or Zonal Value, whichever is higher}$.
2. Motor Vehicles:
   • Employer purchases vehicle in employee's name: $\text{Monetary Value} = 100\% \times \text{Acquisition Cost}$.
   • Employer owns vehicle and provides it for employee's mixed personal and business use: $\text{Monetary Value} = 50\% \times \frac{\text{Acquisition Cost}}{5\text{ years}}$.
   • Employer leases vehicle for employee's use: $\text{Monetary Value} = 50\% \times \text{Rental Cost}$.

Worked Computational Example: Housing Benefit

A manufacturing corporation leases a residential condominium for its Vice President of Operations (a managerial employee) for PHP 65,000 per month. How much is the quarterly Fringe Benefits Tax due, and what is the total deductible expense for the corporation?

• Monthly Rental: PHP 65,000
• Quarterly Rental (3 months): $\text{PHP }65{,}000 \times 3 = \text{PHP }195{,}000$
• Quarterly Monetary Value (50%): $\text{PHP }195{,}000 \times 50\% = \text{PHP }97{,}500$
• Quarterly Grossed-Up Monetary Value (GUMV): $\text{GUMV} = \frac{\text{PHP }97{,}500}{65\%} = \text{PHP }150{,}000$
• Quarterly Fringe Benefits Tax Due (35%): $\text{FBT} = \text{PHP }150{,}000 \times 35\% = \text{PHP }52{,}500$
• Total Deductible Expense for Corporation: $\text{Deductible Business Expense} = \text{Monetary Value} + \text{FBT} = \text{PHP }97{,}500 + \text{PHP }52{,}500 = \text{PHP }150{,}000$ (Note: The remaining 50% of rental, or PHP 97,500, is deductible as regular ordinary rental expense, bringing total cash outlay to PHP 195,000 + PHP 52,500 = PHP 247,500).

Exempt Fringe Benefits (Section 33(A))

The following benefits are exempt from FBT:

1. Fringe benefits authorized and exempted under special laws.
2. Contributions of the employer for the benefit of the employee to retirement, insurance, and hospitalization benefit plans.
3. Benefits granted to rank-and-file employees (whether in cash or in kind).
4. Fringe benefits which are required by the nature of, or necessary to the trade, business, or profession of the employer (convenience of the employer rule), such as housing provided within a 50-meter perimeter of a remote mining site or factory.
5. De minimis benefits within statutory limits.